The USA are seen today as a clear example of free trade policies, but was that always the case? If we looked back to the 19th century, we would find the opposite scenario.
Following the American Independence War, the economy of the United States was entirely differentiated between the agrarian Southern pro slavery States and the Northern manufacturing States. The South opposed any kind of protectionism in order to boost the exports of its products, especially cotton, whereas the North strongly upheld it to support its incipient new industry. Britain was the industrial leader back at the time, and the North knew it was impossible to compete with them in a free trade regime.
As a result, Alexander Hamilton, secretary of the treasury in the early 19th century, opted to levy British products whereby a tariff system which promoted domestic merchandise. In the words of Ha-Joon Chang […]” infant industry protection is meant to provide the relevant firms the time and the resources” […] to develop.
This policy, known as import- substituting industrialization, however useful, has to be applied carefully. Back in the day, the USA did not have a solid banking system. During the first half of the 19th century it was very unstable, particularly in the frontier. Bank failures were very common, hampering the extension of credit to new industries and therefore impeding the birth of them.
This capital market imperfection could be considered a clear example of why, in certain occasions, governments have to intervene to kick-start new industries, so that they develop and become competitive. The constant pressure from the North to establish tariffs to benefit its industry caused outrage in the South, where they had no need for such policies due to a cheap labor force (largely slaves) and consequently the lack of incentive to implement mechanized industries. Many argue that this factor was one of the main causes which triggered the outbreak of the American Civil War, disguised as a confrontation for freedom where the central purpose was a dispute over industrial policies.
Eventually the Northern States won the war. Their industrial policies allowed revenues to increase thanks to tariffs and the possibility of manufacturing their own rifles and ammunition, whereas the South had to either import them from Britain or produce their own, but the latter option was proved futile due to the lack of expertise and capital. The war rendered both sides indebted, but the South was especially hit because they did not have the sound finances the other side had at the beginning of the conflict. The winning party put into use protectionism thereafter, which was in place until the end of the WWII, when The United States became the largest economy in the world.
Obviously,
the American policies are quite different today than they were back then. Today
America is the stronghold of free trade policies and its vanguard is the TTIP
(Transatlantic Trade Investment Partnership).
Throughout history, no country has ever industrialized following free trade policies. The USA is an example of many, such as England with Edward the III (1312–1377) and the Tudor dynasty, or Germany (the Prussian state back then), when Bismarck used tariffs in 1879 in certain sectors, such as iron, to gain the favor of industrialists and set into motion large factories. Once those countries were regarded as economic supremacies, they opted for free trade policies with the advantage of having the high ground.
Many consider protectionist policies as backward, undeserving of advanced economies, but at some point in history, the main economic powerhouses drew on them to develop. Plainly, free trade policies are a good strategy from the point of view of those who are at the summit of hegemony economic power in order to deprive others of the ability to attain the same triumphs.